Bankruptcy Trustee has 10 Years to Challenge Transfer to a DAPT

A number of states have enacted Domestic Asset Protection Trust (DAPT) legislation. Ohio may soon join those states. These statutes authorize what are known as "self settled" trusts. This essentially means that the person setting up the trust is also one of its beneficiaries. Thus, the person setting up the trust is attempting to protect some of his or her own assets (in addition to possibly protecting the assets for one or more other beneficiaries).

As I have noted in other posts, there is still not a single reported court decision in the United States that specifically upholds this kind of trust. This is one of the reasons that I have been advising my clients not to put too large of a percentage of their assets into a DAPT.

Another significant consideration is that a bankruptcy trustee can challenge a conveyance to a DAPT within 10 years of the time it is made. While 11 U.S.C. §548(a)(1) provides a general two year time frame in which a trustee can challenge alleged fraudulent conveyances, section (e)(1) provides a 10 year period with respect to self-settled trusts.

One of the goals of asset protection planning is to make sure that you do not end up in bankruptcy. But it is obviously impossible to know in advance whether a future bankruptcy might be necessary. Thus, 11 U.S.C. §548(e)(1) should be a very important consideration in deciding how much to contribute to a DAPT (and whether to form one in the first place).